Needs to get down to $199 to compete, says analyst, and that demands cheaper Windows RT licenses for OEMs

Microsoft has relaxed a Windows 8 certification requirement to allow devices with lower resolutions, a move analysts said signaled Microsoft would soon join the accelerating shift to smaller, less expensive tablets.

"The sub-eight-inch part of the tablet market will be growing this year to about 55% of the entire market," said Bob O'Donnell, an analyst with IDC. "Microsoft hasn't even been playing in that segment, and they needed to do something."

Ed Bott, a blogger with ZDNet, first reported on the resolution requirement change earlier today. Microsoft spelled out the relaxed rule in a March 12 newsletter from its certification program, which oversees use of the Windows logos that OEMs prominently display on their hardware.

In that newsletter, Microsoft made it clear that while it will now allow lower-resolution devices -- the new minimum is 1024 x 768 -- it would prefer that OEMs (original equipment manufacturers) stick with higher-resolution screens.

"This doesn't imply that we're encouraging partners to regularly use a lower screen resolution," the newsletter stated. "In fact, we see customers embracing the higher-resolution screens that make a great Windows experience. [But] we understand that partners exploring designs for certain markets could find greater design flexibility helpful."

The previous Windows 8 certification rule -- which also applied to Windows RT -- required a minimum 1366 x 768 resolution, and thus a 16:9 aspect ratio. The lower resolution would allow for Windows 8 and Windows RT tablets similar to Apple's smaller iPad, which relies on a 7.9-in. display with 1024 x 768 resolution, and results in a 4:3 aspect ratio.

Analysts interpreted the certification change as just that: Microsoft is giving OEMs the green light for smaller Windows RT and Windows 8 tablets, and signaling that it will do so itself in its Surface line, all an effort to compete with the likes of the $329 iPad Mini and the Samsung Galaxy Note 8. The latter boasts an 8-in. screen with a 1280 x 800 resolution.

"There's no doubt, from a Surface perspective, that Microsoft is interested in the 7-in. and 8-in. form factor," said Carolina Milanesi of Gartner. "To consumers, content consumption is what matters, and for that, the [smaller] form factors are ideal."

Both Milanesi and O'Donnell noted that because of their smaller screens, such tablets will be lower priced, another area where Microsoft has so far been AWOL.

"The question is, how low will they go?" said O'Donnell. "They may shoot for $399, but they really need to start at $299."

Milanesi suggested even lower prices, arguing that Microsoft and its Surface line, as well as OEMs' tablets, need to be price-competitive with $199 Android tablets, and not aim only at the higher-priced iPad Mini, which leads off at $329.

To do that, however, Microsoft will have to lower more than just its resolution requirements.

"It's not just about relaxing the certification requirements," said Milanesi. "They also need to do something about their Windows licensing. They can't charge OEMs the same for a license to Windows RT [for a smaller, less expensive tablet] as they do for Windows on a full-sized tablet aimed at the enterprise."

Milanesi also made the case that by allowing smaller tablets at corresponding lower prices, Microsoft could more easily differentiate Windows RT -- its limited-function, all-app tablet OS -- from the better known, legacy-software-compatible Windows 8.

"Windows RT is in a tough spot," Milanesi observed, citing high hardware prices, trouble buyers have in understanding the differences between it and Windows 8, and form factors not conducive to content consumption tasks, like reading.

"What's the difference between Windows RT and Windows 8?" she asked, then answered by urging Microsoft to dedicate the former to smaller, cheaper tablets.

"Microsoft wants to be in this market," said O'Donnell, referring to the 7-in. and 8-in. tablet segment. "They have to be where things are hot, where the action is."